Treasuries advanced, extending their first weekly gain since April, before a government report that economists said will show U.S. job growth slowed last month.
Benchmark 10-year yields approached the lowest in two weeks as signs the recovery is losing momentum prompts investors to pare bets the Federal Reserve will end bond purchases. The yield jumped 11 basis points on May 22 when Fed Chairman Ben S. Bernanke said officials may taper bond purchases if they become confident gains in the economy will be sustained. A measure of volatility in Treasuries reached the highest since June 2012.
“If you look at the consensus expectations, it’s not going to be a too stellar number in terms of what we’ve had,” said Rasmus Rousing, a fixed-income strategist at Credit Suisse Group AG in Zurich. “The re-pricing that we saw after Bernanke was quite significant and we simply don’t see that in the longer term that these levels are sustainable.”
The 10-year yield dropped two basis points, or 0.02 percentage point, to 2.06 percent at 7:24 a.m. New York time, according to Bloomberg Bond Trader prices. The 1.75 percent security maturing in May 2023 gained 7/32, or $2.19 per $1,000 face amount, to 97 9/32.
The yield has declined seven basis points this week, the first drop since the period ended April 26. It fell to 1.99 percent yesterday, the lowest since May 24. The 10-year rate may drop to 2 percent in 12 months, Credit Suisse’s Rousing said.
U.S. employers added 163,000 workers in May, down from 165,000 in April, based on a Bloomberg News survey of analysts before the Labor Department report at 8:30 a.m. in Washington. Gains have slowed after rising by 332,000 in February. The unemployment rate will hold at a four-year low of 7.5 percent, a separate survey showed.
Treasuries tumbled after the previous jobs report on May 3, when the increase of 165,000 for April topped the forecast of 140,000 projected by a Bloomberg survey. The Labor Department revised March’s reading to 138,000 from 88,000 and the jobless rate unexpectedly dropped.
“If we see continued improvement, and we have confidence that is going to be sustained, we could in the next few meetings take a step down in our pace of purchases,” Bernanke told the Joint Economic Committee of Congress on May 22. He also said tightening policy too soon would endanger the recovery.
Volatility in Treasuries as measured by the Bank of America Merrill Lynch MOVE index climbed to 84.75 yesterday, the highest since June 18, 2012. It has averaged 62.5 in the past 12 months.
Bank of America Corp.’s market risk index covering global equities, commodities, bonds and currencies was negative 0.47 yesterday, matching the highest level since August. It is still less than the average for the past decade, which is about zero.
“Because of market volatility, people are going back to safe assets,” said Genzo Kimura, an investor in Tokyo at Sumitomo Mitsui Trust, which oversees the equivalent of $43.6 billion. “The U.S. Treasury is a safe asset.”
Loomis Sayles & Co. is buying 30-year Treasuries, betting the U.S. central bank will maintain its stimulus program.
The Fed’s bond-buying plan “will be around longer than the market thought,” Matt Eagan, a co-portfolio manager of the company’s Strategic Alpha Fund and Strategic Income Fund, told reporters in London. “The economy is not strong enough despite the recovery. The market is getting ahead of itself. Even if the Fed starts to taper, they will still be injecting liquidity into the market.”
Treasuries handed investors a loss of 0.8 percent this year through yesterday, according to the Bloomberg U.S. Treasury Bond Index. The MSCI All-Country World Index of shares gained 8.2 percent including reinvested dividends, data compiled by Bloomberg show.